Royal Bank of Scotland saw a revival in its shares yesterday on hopes of a £3bn cash boost from the sale of a stake in its insurance division, as leading shares recorded their sixth largest daily percentage rise on record.

Reports that private equity group CVC and reinsurer Swiss Re may pay £3bn for a 51% share of RBS's Direct Line and Churchill businesses sent the bank's shares 15.9p higher to 84.5p. The rise came despite Credit Suisse analysts cutting their price target for RBS from 120p to 70p and issuing a cautious note on the whole sector.

HBOS slipped 1.1p to 78.9p on concerns about the success of the proposed takeover by Lloyds TSB, 14.7p higher at 173.5p. Credit Suisse moved its price target for HBOS from 145p to 105p.

Insurers had a mixed time of it yesterday. Mostly the sentiment was negative, with growing concerns that insurance companies might have to follow the banks and raise new funding to boost their capital ratios. RSA Insurance fell 3.7p to 116.3p despite news that chairman John Napier had bought 100,000 shares at 121p each.

But Prudential jumped 60.25p to 330.25p on talk it was planning to bid £8.6bn for the Asian operations of US group AIG, backed by investment from sovereign wealth funds.

Leading shares were lifted by US federal reserve chairman Ben Bernanke's suggestion that a second set of tax rebates may be needed. Analysts suggested he was also preparing the way for another half-point cut in US interest rates ahead of the Fed's meeting next week. All this sent Wall Street almost 150 points higher by the time London closed, with the FTSE 100 219.67 points higher to 4282.67. The 5.41% rise was again in the top 10, reinforcing the volatile nature of the market.

A late drop in metals prices, following signs of a slowdown in China, was not enough to take the shine off mining shares. Rio Tinto rose 295p to £25.45 while Vedanta Resources closed 64.5p higher at 688.5p.

Talk that Opec may decide to cut oil production sent the crude price above $70 a barrel. So Royal Dutch Shell B shares closed 144p up at £14.94 while BP was 45p better at 476.75p.

Housebuilders were hammered by a spate of bad news. On top of that came a negative note from Collins Stewart, suggesting that "buyers have simply disappeared and are unlikely to return in meaningful numbers until house prices have fallen at least 30%, and probably by much more". Persimmon closed 37.5p lower at 200.75p, Barratt Developments was down 8p at 55.25p and Taylor Wimpey fell 1.5p to 10.5p.

Consumer finance group Cattles recovered from its recent slump, adding 12.75p to 36.25p.